The Kenya government is getting cheaper loans from the domestic market as interest rates on Treasury bills and bonds fall following increased demand from investors.
Yield on the indicative 91-day Treasury bill is expected to fall below 8 percent in this week's auction due to oversubscription, according to analysts, as investors seek to lock in good rates before they decline further.
Last week, interest rate on the benchmark security stood at 8 percent, down from 8.1 percent in the previous week and 8.3 percent in the Sept. 1 auction. There was high bidding for the offer during the September 16 auction, with the 40 million U.S. dollars worth of securities offered by the Central Bank attracting a subscription of 225 percent. Similarly, yields on the 182 and 364 days bills stood at 10.8 percent and 10 percent respectively last week, down from 11.1 percent and 11.5 percent in the beginning of September.
The two securities attracted a subscription of 126 percent and 192 percent respectively, with the high bidding attributed to banks, which are moving away from lending high-risk borrowers following interest capping. The fall in the yields, has therefore, enabled the government to get cheaper credit from the domestic market, accepting more of investors' bids.
Last week, from the 40 million U.S. dollars 91-day T-bill offered, the government received bids amounting to 90 million dollars and accepted 41 million dollars, according to data from the apex bank.
The government, on the other hand, accepted 114 million dollars from the 115 million dollars bid for the 59 million dollars offer for the 364-day bill.
For the Treasury bonds, last month's 250 million dollars offer attracted 260 million dollars at 15 percent. This month, Treasury is borrowing the same amount at 14 percent.
"September has recorded increased activity at the debt market after the capping of lending rates because commercial banks want to get the best yields from Treasury bills and bonds. The government is the biggest winner," said Henry Wandera, an economics lecturer in Nairobi.
Kenya's domestic debt currently stands at slightly above 18 billion dollars, with the bulk of the debt held in Treasury bills and bond.
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